Thursday, September 29, 2011
The Massachusetts economy, following a period of faster-than-national growth coming out of the recession, is showing clear signs of slowing. To date, information technology, software development, high-technology manufacturing, and other components of the Massachusetts high-tech sector have tapped into growing global demand and have allowed the state to outperform the nation over the past year. More recently, the demand for these products and services has flattened out, and this development is expected to slow state growth in coming months.
Even in the face of encouraging growth in gross state product, recovery in the Commonwealth's labor market has been agonizingly slow. Massachusetts never regained its 2001 employment peak before shedding more jobs in the recent recession, and even with net gains since summer 2009, the state's job tally remains about 150,000 below that peak level. Unemployment, while lower than at its peak, remains troublingly high. The average duration of unemployment in 2011 has reached 35 weeks, the highest in recorded state history. All segments of the population are suffering from long-term unemployment: young workers, including recent college graduates; middle aged workers, especially those who worked outside the high technology sector; and workers who are approaching retirement age, and face the prospect of forced early retirement with too few resources for a comfortable life. In addition, there has been a sharp rise in "hidden unemployment": a decline in the estimated size of the active labor force this year implies an increase in the discouraged unemployed; and during the first eight months of this year, over 200,000 workers were employed part-time even though they wanted full time work.
Future prospects are clouded by factors outside of the state. Nationally, businesses large and small are awaiting customers before they start hiring. Households with high debt levels, insecure employment futures, and reduced wealth levels, are reluctant to spend. The state's defense contractors and research community await possible bad news regarding future federal government budgets. The Euro currency zone is in the grip of a serious crisis, one that could spread quickly across the Atlantic to Massachusetts, with consequences that are very difficult to predict. In addition to the possible effects of financial contagion, stagnation in Europe affects the state through our export markets.
The MassBenchmarks Editorial Board calls upon federal policy makers to address our economic circumstances with renewed vigor. Recent revisions of federal economic statistics make clear that the downturn that began in 2008 was much deeper than policy makers realized at the time. With monetary policy now nearing the limit of its effectiveness, we urge that the political deadlock that has been blocking additional fiscal policy measures be broken. It is clear that the economy is not going to heal itself, and that fiscal austerity in the short run will only prolong the economic suffering. The economically prudent policy — more fiscal stimulus in the short run coupled with deficit reduction that takes effect as the economy recovers — can be achieved if we can reach political consensus.
This summary reflects the discussion of the members of the Editorial Board of MassBenchmarks at its meeting on September 23, 2011. It was prepared by Executive Editor Robert Nakosteen and was reviewed and edited by the members of the Editorial Board. While discussion among the Board members was spirited and individual Board members hold a wide variety of views on current economic conditions, this summary reflects the consensus view of the Board regarding the current state of the Massachusetts economy.
MassBenchmarks is the journal of the Massachusetts economy and is published by the UMass Donahue Institute in collaboration with the Federal Reserve Bank of Boston. Its editorial board is made up of leading economic analysts from across Massachusetts. The opinions expressed by the Editorial Board do not necessarily represent the opinions of the Federal Reserve or the University of Massachusetts.